Is value creation consistent with currency hedging?

Milagros Vivel Búa, Luis Otero González, Sara Fernández López and Pablo Durán Santomil
Authors registered in the RePEc Author Service: Sara Fernández-López

The European Journal of Finance, 2015, vol. 21, issue 10-11, 912-945

Abstract: This paper analyzes value creation through currency hedging in the Spanish market. The results show that the hedging with derivatives generated an average premium of 1.53% and that foreign currency debt generated 7.52%, with respect to company value approximated by Tobin's Q , while operational hedging does not affect company value. Moreover, in half of the observations corresponding to companies that hedged with derivatives, the value premium was between 0.08% and 0.99%. In the case of foreign currency debt, the range was between 1.79% and 10.37%. It demonstrates that the contribution of currency hedging to company value fluctuates considerable according to the volume of financial hedging. Thus, an empirical study of this aspect which only analyses the decision to hedge through dummy variables to define financial hedging, as empirical previous studies, can lead to biased results in terms of estimated premium amounts, because it assumes a homogenous treatment of companies regardless of hedging volumes.

Date: 2015
References: Add references at CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
http://hdl.handle.net/10.1080/1351847X.2013.773262 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:taf:eurjfi:v:21:y:2015:i:10-11:p:912-945

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/REJF20

DOI: 10.1080/1351847X.2013.773262

Access Statistics for this article

The European Journal of Finance is currently edited by Chris Adcock

More articles in The European Journal of Finance from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().